Address
111 Waterloo Street, Suite 310
London, ON N6B 2M4

CEBA Loans – Who is Responsible?

November 17, 2021

The Canadian Government rolled out the Canada Emergency Business Account as a joint venture between The Business Development of Canada (“BBDC”) and Chartered Banks.  The banks provided a client facing while BDC funded and back-ended the administration.

While I was writing an earlier blog article, a year ago, I was seeking clarification of the terms of the loan and reached out to my own Business Account Manager at a major Canadian Chartered Bank to get some information.  I did have a copy of the loan terms that was issued to an insolvent client from a different Chartered Bank – I wondered if the loan terms might have any variance between institutions.

The response I got in conversation was quite surprising – the Banker had absolutely no idea what the terms of the loan were beyond a few talking points that were scripted to him and other Bankers.  In fact, what I was told, via email was:

With regards to the CEBA loan, I do not have a terms and conditions statement as this loan is adjudicated by the Federal Government.”

The Banker went on to ask:

Wondering if you have time to talk on the phone…”

At the time, I suspect, the Banker thought I would make the application for the loan for myself – and it appeared to be something that could be done by telephone.  I am not wishing to embarrass the Banker in this blog, just to point out how challenging the loan terms and repayment consequences are for small business clients to comprehend.

The Bankers selling the loans only had scripted information available and the terms of the loan agreements that I have seen are quite vague.  Having said that there is quite a bit of language that relates to default and the ability of the lender (at the end of the exercise, it appears that BDC is the actual lender) to call the loan.  The loan terms appear to indicate that if the borrower is not an incorporated entity (i.e., a proprietor) they would bear a personal liability, for a default, but in the case of an incorporated entity, being the borrower, the corporation would be liable for the default.

This clause has confused callers (to our office) and they appear to believe that it lets them off the hook, however, that is probably not the case.  It is doubtful that large, wealthy. corporations took out the loan, even with the enticement of having a forgiveness allowance if it were repaid within the requisite time frame.  In the case of small, closely held, corporate entities the directors (usually the shareholders) sign personal guarantees for almost all borrowings of the company.

This basic principle holds true even if the company files for bankruptcy – the directors will carry the burden of liability including all interest and penalties.   Sadly, many of the small businesses that took out these loans are either no longer operating or are still struggling for survival.

As I was writing this blog, I called our local BDC office, and the call was streamed through to a call centre in Ottawa.  After a long hold, I asked the attendant to provide information on personal liability for small business owners.  Ironically the attendant suggested I call the originating Chartered Bank.  After explaining that Proofs of Claim from BDC and previous advice from the Chartered Bank suggested it was BDC who administered the CEBA loans I was put on another protracted hold while the attendant sought out someone more knowledgeable about the product.

Finally, the attendant came back to my call to advise that the BDC has not developed any clear protocols for collection or liability and would look at collection on a “case by case basis” – whatever that means.  Typically, I was told, “BDC would attempt to restructure the loan”.  The attendant also had “no idea” if the BDC would pursue legal action in the case of default.

At the end of the conversation I was advised the BDC has no clear path of protocol for dealing with the collection of CEBA loans in default, and the attendant “could not provide a clear answer”.  One could speculate that interest and penalties (if applicable) might continue to accrue until such time as either the debts become statute barred or the BDC does take some legal action – whichever occurs first.

In the meantime, as an abundance of caution debtors should be advised to treat the loan as collectible and include it on their statements of affairs in insolvency filings, and when restructuring their own debts, arrange to pay, without assuming that the liability dies with the corporation.

If you or someone you know is struggling with CEBA or any other indebtedness, call the office for a free consultation:  519-646-2222